German Chancellor Gerhard Schröder reaps what he sows

Gerhard Schröder is calling companies who outsource ‘unpatriotic‘, after Ludwig Georg Braun, the president of the federation of chambers of industry and commerce, advised German businesses to seek opportunities elsewhere.

So, Gerhard Schröder, the man who has presided over yet another interventionist government whose policies have made Germany progressively more and more uncompetitive over the years, brazenly refuses to accept his personal responsibility for imposing the very policies which are driving businesses to seek to invest elsewhere.

But then I suppose as the prerequisite for any professional politician is to be able to look an entire nation in the eye and tell them black is white and up is down, and then ask to be applauded for saying that… and what is more, more often than not, that is exactly what happens.

Whatever. Reality always has its way with vainglorious politicians in the long run because people, and their capital, will eventually go where their interests are best served.

And that place will not be Gerhard Schröder’s Germany.

March 29th, 2004 |

8 comments to German Chancellor Gerhard Schröder reaps what he sows

“Gerhard Schröder is calling companies who outsource ‘unpatriotic’…” Boy, he sounds so much like Kerry, who accuses outsource companies Benedict Arnold companies, even though 57% of his ketchup is made overseas. The politic on both sides of the Atlantic is converging pretty fast. Now Bush is being accused of not preventing 911, paving the way for the Americans to vote against him in order to appease the terrorists. So much like the Spaniards.

Am I the only one who sees the government’s problem with outsourcing? It eats away at GDP, or in other words the tax pie. Protectionism, and the short term benefits therefrom for the State, is only going to increase as governments in hock up their ears are going to do their best to make good on the promises and iou’s by making sure the pie they slice off of is as big as it can be.

They may couch it in terms of some populist mumbo jumbo to pander to voters, but we know what the real stake in the matter of the State is. I wouldn’t be surprised if the next move is to disallow the expense for outsourced expenditures. If its not made to another domestic entity (so it can be taxed as income) it won’t be allowed as a business expense.

Actually the German Chancellor has tried (and is trying) to push through some (very modest) pro freedom reforms.

He is no free market person, but he is less of a phony than Mr Blair and Mr Brown – men who talk endlessly of an “enterprise” economy, whilst pushing for ever more government spending, taxes and regulations.

As for politicians misleading the public – certainly they do. But as we have just seen in France the majority of voters may be hostile to even the most modest efforts to roll back the state.

One could argue that it was politicians of the past who corrupted the people (with a great deal of help from both academia and the media), but that does not alter the fact that the public of Germany (and France and Britian and……) are mostly statist in their opinions.

In Germany (as the Economist reports this week) it is not just a question of votes – the newspapers that sell bestare the ones that praise reform in vague theory, but which oppose each specific reform as “socially unjust”.

Gerhard doesn’t like outsourcing, eh? Just what does he think our armed forces have been doing in Germany these past 60 years? They’ve “outsourced” their protection to US, chose to put themselves in the economic mess, blame US for letting them be miserable, and blame US now that we’re pulling out.

The New Zealand public is little different from that of France, Germany and Britain in their support for Nanny State. A recent values survey found that (I cant remember the exact figure) a significant minority of Kiwis thought a dictatorship would be a good way to solve social/economic problems. A majority thought the state in general should be the major problem solver in society.

The reality is that we are dealing with addicts, no different to heroin addicts. Telling the addict he/she can no longer have their drug of choice, in this case the state, is not going to be democratically popular. Forcing the addict to go cold turkey is going to create resentment. Even trying to wean the addict off in small doses is going to be unpopular, as the current government in France has found out.

The NZ governments that produced serious free market reforms in the late 1980’s and early 90’s were able to do so only because they lied to the electorate about their intentions. And some of us are glad they did. But it’s not exactly a recipe for good and moral government.

“Am I the only one who sees the government’s problem with outsourcing? It eats away at GDP, or in other words the tax pie.”

I realize that this is in support of an antistatist position, but I’m afraid it is still wrong. While it is true that outsourcing has an immediate effect of transferring some employment out of the country, it wouldn’t be done if the work couldn’t be done more cheaply overseas. Getting the value of the work for a lower cost increases GDP. And increases GDPs both domestically and overseas, as a matter of fact. (Law of Comparative Advantage)

In the case of no outsourcing, the GDP benefits by the the value of the work less a cost of (X).

In the case of outsourcing the GDP benefits by the value of the work less a cost of (X minus the savings by having it done overseas).

You can argue the pay that the worker would get from doing the work is lost from the GDP, and that is true – in the short term. But he will find other – generally more valuable work – and do that instead, after a time. If he is unwilling to seek new work, or if the means of seeking it (educational resources, employment flexibility, etc) are not available, that is indeed a problem. But it is a problem in any case. Outsourcing is just pointing out an area of ossification in the economy.

Another way of looking at this is to imagine a company with a new improved secret manufacturing process that makes a product more cheaply than its competitors. Over time the competitors will lose market share and lay off employees. No one would argue that a new innovative process that produces a similar product for a much cheaper price is not a good thing – good for the consumer and good for the GDP. The economic losses to competitors are understood and accepted as necessary to progress.

Now what if the secret process is outsourcing? What exactly is the difference? The effects on the economy and the GDP are the same. If people can’t easily change their work they will suffer equally from innovation or outsourcing.

Cries of alarm at the unemployment accompanying outsourcing are perhaps warranted, but the blame is misplaced.

No one would argue that a new innovative process that produces a similar product for a much cheaper price is not a good thing – good for the consumer and good for the GDP.

Actually, some would. I listen to a local “co-op” radio station that is very labour-left, and most of the commentators on that station would argue that a new processes such as you described is a bad thing. They’d be wrong, of course, but they’d make the argument. That notwithstanding, though, I liked your explanation of outsourcing.

Getting back to Schröder’s remarks, we had a similar situation in Canada a few years ago. Our Prime Minister said Canadians who emigrated to the U.S. to persue better economic opportunities there were bad Canadians anyway, so no loss. While his comments were met with shock by some, they were applauded by many. Supporters of the nanny state become nationalists very quickly when their state is contrasted with one that’s less interventionist. (Ironically, the U.S. is probably as interventionist as Canada, but it’s not perceived as such by Canadians.)

Who Are We?

The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.